Stocks stall as firm Fed reins in China rally
The rally in global stocks paused on Thursday, led by declines on Wall Street, as upbeat jobs data after a firm message from the Fed that it won’t be cutting interest rates any time soon offset China’s latest reopening plans.
News that China’s mainland border with Hong Kong will be reopened after three years had sent Asian-Pacific shares outside Japan (.MIAPJ0000PUS) to a four-month high overnight, but with both the dollar and bond market borrowing costs creeping up, Europe couldn’t keep up.
The MSCI All-World index (.MIWD00000PUS) shed 0.55%. On Wall Street, the S&P 500 (.SPX) and the Dow Jones Industrial Average (.DJI) lost 0.8%, and the Nasdaq Composite (.IXIC) dropped 0.9%.
The pan-European STOXX (.STOXX) index was flat after gaining more than 3% in its first three sessions of 2023. London’s FTSE 100 (.FTSE) managed a respectable 0.7% rise as better-than-expected numbers from retail giant Next (NXT.L) lifted the entire European sector , but it barely made up for a groggy Frankfurt (.GDAXI) and Paris (.FCHI).
“Everyone expected a hawkish message from the Fed and that is what we got,” said MUFG’s Head of Research for Global Markets EMEA, Derek Halpenny.
“Really it’s now about payrolls (U.S. jobs data) tomorrow,” he added, explaining that the labour market would be a big factor in how high inflation remained this year.
“A strong print tomorrow and I think you are going to get a fairly rapid repricing for a 50 bps hike at the next (Fed) meeting.”
Investors were already digesting their pre-payrolls appetiser, the ADP National Employment report, which showed the private sector added more jobs in December than a month ago. It came a day after a moderate fall in U.S. job openings too.
China, meanwhile, has abruptly dropped ultra-strict curbs on travel and activity, fanning hopes that once the infection waves pass its giant economic motors can start firing again and offset the slowdowns in other parts of the world.
Thursday’s biggest Asian gains included E-commerce and consumer stocks in Hong Kong thanks to the China mainland border news, which drove the Hang Seng (.HSI) to a six-month high.
The yuan also rose about 0.12% to 6.8681, a four-and-a-half-month high, and also supported other currencies such as the Thai baht which, as Thailand is now expected to see a mass return of Chinese holidaymakers, has surged nearly 14% in less than three months.
“China reopening has a big impact ... worldwide,” said Joanne Goh, an investment strategist at DBS Bank in Singapore, since it not only spurs tourism and consumption but can ease some of the supply-chain crunches seen during 2022.
“There will be hiccups on the way,” Goh said, during an outlook presentation to reporters. “We give it six months adjusting to the process. But we don’t think it’s reversible.”
China’s central bank also said overnight it would step up financing support to spur domestic consumption and key investment projects and support a stable real estate market.
It has eased an unofficial ban on Australian coal imports in recent days as well and the Australian dollar made a three-week high overnight just below $0.69. It last bought $0.67550.
Oil rebounded too, after posting the biggest two-day loss for the start of a year in three decades.
Brent crude was last up 0.7%, to $78.35 a barrel, while U.S. West Texas Intermediate crude futures gained 0.45% to $73.16 an unexpected shutdown of a major U.S. fuel pipeline also lifted prices.
“This morning’s rebound is due to the shutdown of Line 3 of the Colonial pipeline,” said Tamas Varga of oil broker PVM. “There is no doubt that the prevailing trend is down,” though he added: “It is a bear market.”